Tax and Legal News, May 2021

Corporate taxation

New statement on COVID-19-related restrictions and their effects on the taxation of foreign corporate entities

The Finnish Tax Administration published a new statement regarding the special conditions caused by the COVID-19 pandemic and its effects on issues concerning the creation of permanent establishment and corporate residence.

The statement is based on OECD ’s guidelines which coincide with the Finnish Tax Administration’s views. Temporary and exceptional changes to a foreign corporate entity’s circumstances caused by the pandemic do not, for example, automatically trigger a permanent establishment in Finland.

However, it is generally required that the temporary conditions do not continue after the restrictions are lifted. If the foreign entity has been affected by the exceptional conditions due to the pandemic, it is the responsibility of the entity to provide a detailed clarification, including appropriate evidence of official restrictions etc.

CJEU: Different tax treatment of income from foreign investment fund and domestic investment fund was deemed contrary to EU Law

The Supreme Administrative Court requested a preliminary ruling from the CJEU on whether the free movement of capital constituted an obstacle to national legislation according to which the profits from a Luxembourg SICAV fund may be taxed at a higher rate than profits from a domestic contractual investment fund, considering that both are regulated under the UCITS Directive.

In its judgment (C480/19), the CJEU ruled that profits received from a SICAV fund were objectively comparable to profits received from a Finnish contractual investment fund (as opposed to a Finnish limited liability company, as argued in the appealed decision). Thus, the different national tax treatment of profits from a SICAV fund and a Finnish investment fund was contrary to the principle of free movement of capital within the EU.

Changes ahead for UK transfer pricing documentation

Her Majesty’s Revenue and Customs (HMRC), the UK’s tax authority, has asked for comments on proposed changes to its transfer pricing rules. The consultation period is relatively short – with a June 1 deadline.

While the proposed changes would align the UK’s current rules more closely with the documentation requirements of other jurisdiction and with the BEPS Action 13 Report, they also contain some novel features.